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Personal & Sole Trader Debt

Regardless of whether your debt has been accumulated through personal expenditure, or from costs of being a sole trader, personal debt, and sole trader debt are regarded the same in the eyes of the law. Unlike limited companies, sole traders are not protected by limited liability. As such, sole trader debt is tied to the person rather than a company. Because of this, personal and sole trader debt solutions are the same.

How we work

Upon initial contact with one of our experienced advisors, we will look into financial position and discuss where you’d like to be from where you are now. This will guide us towards the most appropriate course of action for you and help us to prepare your free of charge and obligation consultation with one of our consultants.

What options are available to deal with debt

There are several options available for those looking to relieve their debts. These include: A Debt Relief Order, which is useful for non-homeowners owing small amounts of debt, a Debt Management Plan, which is an informal agreement allowing you to pay back unsecured debts through monthly instalments. You could also apply for an Individual Voluntary Arrangement (IVA), a binding agreement between you and your creditors to ensure you repay debt you can afford. Alternatively, you can go bankrupt to write off your debts. Our advisors will look at all options available and decide which is best suited for you.

Personal and sole trader debt

Individual Voluntary Arrangement (IVA)

An Individual Voluntary Arrangement (IVA) is a formal repayment arrangement, which consolidates unsecured debt into a monthly, affordable payment made to us as your insolvency practitioner (IP), which we then divide equally amongst your creditors. Sole traders can continue to trade, and the arrangement lasts for around five years. Upon completion, any remaining debt is written-off. IVAs are best suited for those wanting to preserve assets such as property or vehicles while repaying their debts.

Find out more about IVAs here

Bankruptcy

If your debts are substantial enough that you won’t be able to pay them back even with a repayment plan, or your income is low, and you have no high-value assets to protect, bankruptcy might be the most appropriate course of action. Creditors can instigate this, or you can apply yourself.

A creditor can force you into bankruptcy if you owe them more than £5,000.

Bankruptcy generally lasts one year. During which, your unsecured debt is written off, and you’re protected from legal action from your creditors.

You have little control over the process, and if you own what are classed as ‘high-value’ assets, they could be sold off to recover their debt. It can also affect you professionally and stays on your credit history for a long time.

In the UK, bankruptcy is only applicable to individuals. Company liquidation is the equivalent of company bankruptcy.

In summary

Personal debt and sole trader debt are the same in the eyes of the law, as a self-employed person isn’t protected by limited liability. This means that the debt solutions are the same because sole-trader business debts are tied to the person, not the business. Various options are available, including a Debt Relief Order, Debt Management Plan, an IVA, which consolidates your debt over five years and allows you to continue trading, or if you have no assets to protect, you can apply for bankruptcy to write off what you can’t afford.

How we can help

Our experienced advisors are on hand to explain the intricacies of insolvency and personal debt; we understand that not everyone is an expert, and the technicalities can be confusing. Once they’ve discussed your financial position and where you’d like to be, they will talk you through your options and provide you with expert, regulated advice. A free-of-charge, obligation-free consultation can be arranged with our friendly advisors.

Alternative arrangements

Bankruptcy and IVAs are not the only options for those suffering from sole trader and personal debt. If you’re indebted to HMRC, you can apply for a Time to Pay Arrangement (TTP) and repay in monthly instalments. If you own assets as a sole trader, you can try refinancing or invoice financing to inject some cash.

More on how to deal with sole trader debts

Dealing with creditor pressure

Depending on who you owe money to, dealing with creditor pressure can be extremely stressful, so being aware of how to deal with it will make things easier. Knowing the boundaries between reasonable creditor pressure and harassment is also important, so you know when your creditors have overstepped their boundaries.

More on dealing with creditor pressure for individuals

Authored by Ruth Jacks

Ruth Jacks

Licensed Insolvency Practitioner & Compliance Manager